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Tuesday, May 10, 2011

What is SubPrime Crisis? Part.2

Credit agencies specialize in subprime collapse and the financial world follows. What relationship there between the U.S. housing market and the global economy? The answer lies in the word "securitization" To summarize; securitization is to transform its debts or other financial assets into securities that can then discuss the financial markets.

To finance these loans, the specialized agencies transformed risk loans granted to their client’s financial products that would be traded on financial markets. Financial products created were classified as high-risk products and products like any risky potential gains are much greater than other products without risk. As the U.S. housing market had risen in real estate related products for more money but since the summer of 2007.

Anyone wishing to generate significant capital gains has to accept this kind of high risk. Excluding finance against certain products, most of financial products sold, were fairly opaque to the "fill" of various financial products without specifying its nature as subprime "securitized." Banks and institutional investors bought financial products without knowing that they contained subprime-related products.

A large number of banks have in their portfolios of subprime-related products leading to the fall in the value of their portfolios following the sub prime crisis. Unable to identify clearly the financial products purchased containing products related to subprime, no Bank, no investor is able to measure the real impact of the crisis on their portfolios. The defaults of subprime loans in the U.S. are at the early, early impairment placed by investors are only the beginning of the crisis.

Banks do not assess their knowledge related to subprime losses, bankruptcies of several dozen organizations credit risk and market stress pushing banks to conduct extremely suspicious and dare them to lend more money for fear of not being reimbursed following a hypothetical bankruptcy of the borrower.

The crisis of summer 2007 caused many challenges and pointed out the following discrepancies. One of the key players in finance is singled out, these are the rating agencies that failed to anticipate the decline in U.S. housing market and lower the rating agencies to credit risk. Non-transparency of financial products linked to subprime mortgages and bad categorization are also challenged: Some products were produced in monetary corresponding to products of low risk.